BlackRock’s exit from DSP, potential bid for IDFC AMC; What it means for you

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BlackRock, the world’s largest asset manager, has announced plans to exit its long-standing joint venture with DSP. The two institutions have been jointly running DSP BlackRock Mutual Fund since 2009 when Blackrock took over various businesses of the recession hit Merrill Lynch. DSP BlackRock was previously known as DSP Merrill Lynch, a partnership between Hemendra Kothari-promoted DSP and the prominent US-based broking firm.

On 7th May 2018, the two fund institutions announced that DSP would buy BlackRock’s 40% stake in the joint venture. DSP already holds a majority 60% stake. However, it was unclear whether BlackRock would exit the mutual fund industry in India or set up its own separate mutual fund. Reports that BlackRock was in the race to buy IDFC Mutual Fund emerged a few days after the split. Other players in the running are Mirae Asset Global Investments (India), IndusInd Bank and Reliance Mutual Fund.

In an interview, Hemendra Kothari, Chairman of DSP Blackrock Investment Managers, cast doubts on the intent of this bid. Kothari said, “I don’t think they (BlackRock) are going to come (to India) in the foreseeable future…..By and large, they have not gone into retail businesses the world over, except in the UK.” One interpretation of this statement could be that BlackRock may only be bidding for the private equity assets of IDFC rather than the mutual fund. However, there is no clarity on this.

What investors should do

The loss of BlackRock’s vast store of knowledge, expertise and resources is a negative for investors in DSP BlackRock MF. However, DSP itself has a long history of providing financial services (it was earlier focused on stockbroking) in India. It was also the majority player in the joint-venture and played a big role in running the mutual fund. There is no compelling reason to conclude that performance will immediately deteriorate following this exit.

However, a key takeaway from this corporate event is that investors should diversify their investments across fund houses. A single fund house can get acquired by other institutions with a totally different investment outlook or style. This can result in investors being left with a totally different set of schemes than what they signed up for.